Deeming Rules – bad news for pensioners and self-funded retirees

On 4 February 2015 the Reserve Bank of Australia cut the official cash rate to a fresh all time record low of 2.25%. Many economists are factoring another cut to 2% this year.

While this all-time low is good news for families with , it is bad news for pensioners and self-funded retirees that rely on interest income from their cash savings.

The average one year term deposit rate of the big 4 banks is currently 2.7% p.a; with little extra return available for locking up your cash for a longer period.

From 20 March 2015 the deeming rates were lowered to reflect this reduction in interest rates. This means pensioners are likely to see a small boost in their fortnightly pension.

While this increase is welcome, it in no way covers the loss of interest income many pensioners and self-funded retirees have had to endure over the past 3 years.

The deeming rules assume your financial assets are earning a certain amount of interest income, regardless of the income they actually earn. Deeming encourages you to earn more income from your investments and reduces the extent that your payments may vary.

If you are single and getting either a pension or allowance, the first $48,000 of your financial investments is deemed to earn income at 1.75% per annum and any amount over that is deemed to earn income at 3.25% per annum;

If you are a member of a couple the first $79,600 of your and your partner’s financial investments is deemed to earn income at 1.75% per annum and any amount over that is deemed to earn income at 3.25% per annum.

There are a number of strategies and investment classes that we recommend to our clients that increase their level of income at no expense to their age pension entitlements. These strategies ensure that our client’s income level goes further towards meeting their ever increasing living expenses.

If you would like to review your (or your elderly parents) level of income you are receiving from your cash, term deposits and investments please call Phil Reid or Michael Johnson of Sydney Aged Care Financial Advisers on 1300 659 677.